"When an image is captured by your camera's digital sensor, a series of settings are applied as alterations to the original raw data. In many high-end cameras, this raw data can be retrieved "un-touched" as a RAW file, but most digital cameras save your photos as JPEGs. In addition to "alterations" for sharpness, white-balance, and the rest (which are either selected by the camera's default settings or set by you), the choice of file format that the image is saved in can have a profound affect on overall quality. Get it wrong, and there's little that can be done even in Photoshop."Popular Photography has posted a great overview of the different file formats available on your digital camera. I personally think that most people are better off using JPEG instead of RAW, but if you find yourself spending some time in Photoshop working on your images, RAW is the better route.